One of the challenges forex traders face is how to know when a trend is ending, which is a very important aspect of trading, knowing this will change your trading career and give you confidence with your entry.
That being said, there are many ways to identify when a trend is ending, however, in this article, I will show you simple ways to filter the noise and identify the end of a trend.
HOW TO IDENTIFY TREND REVERSAL IN INTRADAY
To identify a trend reversal in intraday, the market must have been trending in a direction for hours then you will notice a weakness in the candlesticks before a chart reversal pattern forms or a candlestick pattern signaling a trend reversal.
Another way to identify a trend reversal in intraday is to use a trend line with support and resistance.
RELATED: HOW MUCH CAN I MAKE TRADING FOREX?
RELATED: HOW TO TRADE FOREX WITH $10
RELATED: VERY EASY AND PROFITABLE TRADING STRATEGY MT4
HOW TO KNOW WHEN A TREND IS ENDING
As I promised, these are the four steps to know when a trend is ending:
- Fibonacci tool
- Chart reversal pattern
- Candle stick pattern
- Trend line/horizontal line
FIBONACCI TOOL
When properly drawn, the Fibonacci tool will map zones where the trend would possibly end long before the candle reaches that price. In other words the Fibonacci tool maps reversal and retracement zones.
In this case for an ending trend, you will be looking at the major reversal Fibonacci zones which are 127.2, 141.4, and 161.8. The retracement zones are 38.2, 50, and 61.8.
RELATED: WHAT IS MARKET STRUCTURE IN FOREX?
HOW TO DRAW THE FIBONACCI TOOL
You must first zoom out your chart to draw your Fibonacci, it gives you a better view of the market and it is much better to draw your Fibonacci from a higher time frame (H4, D1).
On a downtrend market, draw your Fibonacci from the lowest low (market impulse) to the highest high on your chart. You will see the reversal zones there. See the image below.
Note: There are other confirmations to look at before entry (sometimes in a lower timeframe) this is why you need the other three steps we will talk about.
CHART REVERSAL PATTERN
Chart reversal pattern signals when an old trend is completed and a new trend has started, this is of course after the market has moved in a direction for a while. After properly drawing your Fibonacci, you can wait for a reversal chart pattern structure to be formed at a Fibonacci reversal zone before you find an entry in the market. There are three major types of reversal patterns.
FOR UPTREND
- Head and Shoulder
- Tripple top
- M formation
FOR DOWN TREND
- Inverted head and shoulder
- Tripple Bottom
- W formation
Below are images for clarity.
FOR UPTREND
FOR DOWN TREND
HOW TO DETERMINE FOREX TREND DIRECTION
Some of the most complex things in life come with unbelievable simple answers. It is true that every trader trades differently, however, some principles in regards to trading are shared amongst successful traders like how to determine forex trend direction.
That being said, to determine the forex trend direction you only need two simple steps.
- Stay on higher timeframes H1 and above
- Zoom out your chart on the higher timeframes
When you do these two steps, you will be able to tell the dominant trend direction in every market.
RELATED: HOW TO SET STOP LOSS AND TAKE PROFIT IN MT4
HOW DO WE RECOGNIZE THAT A TREND IS STARTING TO EMERGE?
I have mentioned this before at the beginning of this article But for summary purposes, I will list what to look out for to recognize that a trend is starting to emerge.
- draw your Fibonacci to find reversal zones
- At your Fibonacci zone, look out for chart reversal pattern, breakout and retest.
- Trend line breakout and retest.
HOW TO IDENTIFY A BULLISH TREND
If you are reading my articles you would notice I like making complex things simple, with that same simplicity I am going to give you just two simple steps on how to identify a bullish trend likewise a bearish trend.
- Zoom in your chart on higher timeframe (H1 and above)
- The bullish candles make higher highs and the bearish candles make higher lows.
END OF TREND INDICATOR MT4
Many traders look for the end of trend indicators hoping to find a kind of moving averages or stochastic, they get disappointed when they find the truth that indicators are lagging by design.
That being said the answer to the end of a trend indicator is to look out for chart patterns on Fibonacci zones to know the end of a trend.
TREND REVERSAL PATTERNS
There are basically three trend reversal patterns for uptrend and down trend and I have taken time to mention them with live image examples in this article above.
WHAT ARE THE BEST TREND INDICATORS?
This is something every trader wants, what if I tell you that the best trend indicators have been in your MT4/MT5 chart all along. With this tool on your chart, you would know how to identify a trend in trading. People also ask “how do you know if a trend is beginning. These are the tools that will guide you in identifying market trends.
- Trend line
- Zoom in button on higher time frame (H1 and above)
- Candle sticks with higher highs and higher lows.